Europe Chooses Economic Depression: End jobs stimulus, gut social programs, screw working people

Europe Chooses Depression
Strangulation Economics
By MIKE WHITNEY
June 9, 2010


Forget about a smooth recovery. Finance ministers and central bank governors of the G-20, met this weekend in Busan, South Korea and decided to substitute "tried and true" expansionary fiscal policies for their own strange brew of belt-tightening and austerity measures. The EU members are eager to restore the illusory "confidence of the markets", something that will surely be lost when the eurozone slides back into recession and the hobbled banking sector begins hemorrhaging red ink. Trimming deficits while the economy is still on the mend will weaken demand and force businesses to lay off more workers. That will decrease economic activity and slow growth. It's a prescription for disaster.

EU finance ministers show that they still do not understand the origins of the credit bubble that triggered the financial crisis and subsequent recession. Greek bonds are no more to blame than subprime loans. When banks issue loans or purchase bonds it is incumbent on the lender to do due diligence and to check the creditworthiness of the borrower. Traditionally, banks have been very good at getting their money back because they have followed standardized procedures. The rise of shadow banking changed all that. Securitization and repo market transactions create powerful incentives for repackaging dodgy loans so banks can heap huge amounts of leverage atop bad paper. The quality of the loan no longer matters. EU leaders believe the problem can be solved by gutting social programs and strangling the unions, but this misses the point entirely. The shadow system has to be strictly regulated so the threat of credit bubbles is minimized.

The same rule applies to the EU as to the US. Spending increases aggregate demand and grows the economy. When the private sector is too far in debt to narrow the output gap and reduce unemployment, the government has to pick up the slack. Fiscal stimulus cuts the deficits by generating more government revenue. People mistakenly believe that deficits are increased by wasteful government spending, but that's not the case. Deficits widen when revenues plunge because economic activity slumps as it does during a severe recession. The sensible way to trim the deficits is to spend money on the front end and put the country back to work. This is not "liberalism" or "Keynesianism"; it's common sense.

By refusing to provide more fiscal stimulus, Europe is marching headlong into a depression. State funding for additional stimulus is blocked by higher bond yields in the Club Med countries. This is completely unnecessary. The ECB can buy up bonds and force yields down increasing the flow of cash to the weaker economies so they can grow their way out of recession. Instead, the EMU--led by Germany--has chosen hairshirts and thin gruel; a protracted slump and needless suffering brought on by a bizarre attachment to bonehead economic theory. The "market" is not stopping the EU from growing its way out of recession. That's the work of policymakers who want to stuff the 16-state union into a fiscal straightjacket so they can crush the social model that supports workers benefits, rights and entitlements. This isn't economics; it's class warfare.

The EU is faced with the same problem as the US; either take over insolvent banks and restructure their debt--making bondholders and equity holders take a haircut--or endure years of hellish subpar economic performance with high unemployment, dwindling investment, grinding deflation and social unrest. The EU has chosen the latter, and for good reason. A cheaper euro makes EU exports more competitive, which will keep the EU's most powerful member (Germany) happy. Also, deflationary policies protect the interests of bondholders who are heavily invested in financial institutions whose asset values are grossly inflated by cheap money and massive leverage. Finally, austerity measures transfer the losses from banks and shadow banks onto the backs of workers, consumers and retirees. "Screwing workers" drives policy in the EU much as it does in the US.

Read the full article at:

http://www.counterpunch.org/whitney06092010.html

The European economic austerity plan to cut deficits will be supported and copied here by a bi-partisan Congress and the Obama administration.

We should not be surprised to see an all-out attack on the living standards of working people and the middle class in the United States similiar to what we will first witness in Europe.

The Obama administrations announcement of cuts in government spending programs and big concern about deficit spending, Bernanke's testimony on the hill yesterday and President Obama's deficit reduction commission are just a few of the clear signs of what is coming. BBI

than be forced to give up any of their ill gotten government stimulus paid for bonuses back in higher taxes.

Thats what these austerity programs are really about.

Its too bad they arent smart enough to understand that by severely retraining consumer spending by enacting these programs their own net worth will decline due to lower spending on goods and services that will destroy the valuation of the stocks they hold.

Before all of this played out, many of us wondered out loud why they were killing the goose that laid the golden egg- a stupid populace what was willing to work and let them have the lion's share of it.

We decided that they don't really care about the wealth- that's just a nice perk. They'd really rather most of us die and the rest be so destitute that we can never threat their positions.

Great world they're building, isn't it?

and the wealthy will choose it here, too, if we let them.

Europe is in for a harsh lesson on what makes an economy--jobs and consumer spending at the bottom--and what does not--wealth hoarded at the top.

All the world's wealthy are hearing the wolf howling at the door now that they only have enough wealth to last fifty lifetimes instead of a hundred. They will fight any real economic rescue tooth and nail, trying to preserve every dime they still have left, thus insuring most of them will continue to lose paper wealth hand over fist.

Countries in Europe are smaller than the US and the logistics aren't as nightmarish. I fully expect to see national strike after national strike as the shit hits the fan and people start to die from austerity.

You can't starve working people and expect to have a robust economy. Economies just don't work that way, not ever.

Already happening here.
Already happening on DU.

Its our own damn fault for tolerating Big Business Republicans inside the Democratic Party.

"If you invite them to the table, they will eat all the food."---Howard Dean


The Democratic Party is a BIG TENT, but there is NO ROOM for those
who advance the agenda of THE RICH (Corporate Owners) at the EXPENSE of LABOR and the POOR.



"There are forces within the Democratic Party who want us to sound like kinder, gentler Republicans."
---Paul Wellstone



"By their works you will know them."


The DLC New Team
Pro-LABOR Democrats Need NOT Apply

(Screen Capped from the DLC Website)

Wealthy governing elites care nothing for the starving masses. We know how that worked out 200 years ago.

Keeps the masses from majority."

http://www.youtube.com/watch?v=5APBfWZFD84

NSFW, by the way.

"We should not be surprised to see an all-out attack on the living standards of working people and the middle class in the United States similiar to what we will first witness in Europe."


Vice versa. It's just that now the neoliberal onslaught against the working class has spread to Europe.